What Drives Racial and Ethnic Differences in High Cost Mortgages? The Role of High Risk Lenders

Patrick Bayer, Fernando Ferreira and Stephen Ross

No 22004, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines racial and ethnic differences in high cost mortgage lending in seven diverse metropolitan areas from 2004-2007. Even after controlling for credit score and other key risk factors, African-American and Hispanic home buyers are 105 and 78 percent more likely to have high cost mortgages for home purchases. The increased incidence of high cost mortgages is attributable to both sorting across lenders (60-65 percent) and differential treatment of equally qualified borrowers by lenders (35-40 percent). The vast majority of the racial and ethnic differences across lender can be explained by a single measure of the lender’s foreclosure risk and most of the within-lender differences are concentrated at high-risk lenders. Thus, differential exposure to high-risk lenders combined with the differential treatment by these lenders explains almost all of the racial and ethnic differences in high cost mortgage borrowing.

JEL-codes: G21 I28 J15 J71 R21 (search for similar items in EconPapers)
Date: 2016-02
New Economics Papers: this item is included in nep-ure
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Published as Patrick Bayer & Fernando Ferreira & Stephen L. Ross, 2018. "What Drives Racial and Ethnic Differences in High-Cost Mortgages? The Role of High-Risk Lenders," The Review of Financial Studies, vol 31(1), pages 175-205.

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Related works:
Journal Article: What Drives Racial and Ethnic Differences in High-Cost Mortgages? The Role of High-Risk Lenders (2018)
Working Paper: What Drives Racial and Ethnic Differences in High Cost Mortgages? The Role of High Risk Lenders (2016)
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